Dive Brief:
- Hospitals are suing to block a Trump administration pilot that will allow drugmakers to issue post-sale rebates instead of upfront discounts on medications in the 340B drug discount program, arguing it was enacted without proper regulatory procedure.
- The American Hospital Association, Maine Hospital Association and four nonprofit health systems filed the lawsuit on Monday in Maine district court. The complaint alleges that the government created and forged ahead with the pilot without responding to public comments raising concerns about the program, including its steep costs to providers.
- The hospitals also filed a motion for a temporary restraining order preventing the pilot from going into effect while the court considers the case. Currently, the pilot is set to launch on Jan. 1.
Dive Insight:
HRSA announced the pilot program this summer to general outcry from hospital groups, which view it as an about-face from regulators’ previous defense of 340B’s discount structure and a concession to drugmakers, which have long sought to curtail the size of the decades-old program.
Historically in 340B, drugmakers sell medications to eligible safety-net providers at a discount at the point of sale. However, for select drugs in HRSA’s pilot, hospitals will instead have to file paperwork proving that the drug qualifies for 340B before drugmakers issue them a rebate.
Hospitals say that moving away from upfront discounts will cost them hundreds of millions of dollars in implementation and delayed revenue, threatening the financial viability of safety-net facilities. Though only a handful of drugs will be subject to rebates starting next year, they’re some of the most commonly prescribed medications in the country. Moreover, all 340B entities are required to participate in the pilot — some 14,600 providers, according to HRSA.
Given the pilot’s ramifications, it should have been enacted through the proper notice-and-comment rulemaking process, the hospitals argue in the suit.
HRSA did receive hundreds of comments, but did not adequately respond to that input, according to the complaint. Instead, regulators decided to go ahead with the pilot in mid-October, giving hospitals two months to comply or risk losing out on 340B savings entirely.
“When the government announced its new rebate program just a few months ago, it recognized that it would fundamentally shift how the 340B program has operated for more than three decades. When making such a major change, with such far-reaching consequences for patients and hospitals, it is important that the government follow the basic administrative rules of the road. Unfortunately, it did not do so here,” Rick Pollack, the AHA’s president and CEO, said in a statement on the lawsuit.
St. Mary’s Regional Medical Center in Maine, the Unity Medical Center in North Dakota, the Dallas County Medical Center in Arkansas and the Nathan Littauer Hospital and Nursing Home in New York joined the AHA and MHA in the suit.
HRSA did not respond to a request for comment, while an HHS spokesperson said that the department can’t comment on ongoing litigation.
When the pilot program was announced, it surprised many in the industry who viewed it as a sharp departure from the agency’s former position. Previous efforts from drugmakers to unilaterally rebate their 340B drugs faced fierce opposition from HRSA, which argued moving away from upfront discounts would run counter to 340B statute.
The Trump administration has stressed that the program is a pilot to inform future models, not a top-down overhaul of 340B, and that it’s necessary to combat fraud and abuse in the drug discount program.
Roughly 3,000 hospitals benefit from discounted drugs in 340B, which accounted for a record $66.3 billion in purchases in 2023, according to government data. That’s up more than 50% from $43.9 billion just two years prior.
Some critics point to the growth as evidence that 340B has mutated beyond its original intent, with drugmakers accusing hospitals of manipulating the program to profit. It’s a concern shared by some lawmakers, including Sen. Bill Cassidy, R-La., the chair of the Senate Health, Education, Labor and Pensions Committee.
This spring, Cassidy published an investigation finding that 340B discounts don’t always translate to lower costs or improved access for patients. The report builds on conflicting evidence as to how providers use 340B funds.
